Don't let your money wallow in a low-interest savings account.
Put it into a
certificate of deposit and watch your savings
Placing your money into a savings account is obviously a great
idea. But there are much better things that you can do with your
savings than let it collect pennies in interest.
Put your money into a high rate certificate of deposit
and reap the benefits of higher interest rates.
A certificate of deposit, or CD is like a savings account in
that it is FDIC insured and basically risk free. The difference is
that it has a fixed term and a fixed rate. If you withdraw your
money before it "matures" you will have to pay a penalty-usually
some percentage of your interest.
If you have just been instinctively parking your funds in your
bank account for all these years, it's worth your while to explore
the benefits of CDs.
How exactly is a CD different from a regular savings
- It's a one time deposit.
- You can't get the funds out until the CD matures.
- The rate is locked in at the time that you get the CD.
What are the real benefits of a CD?
- The biggest benefit is a higher rate of return via higher
- Your interest rate is locked in and will not fluctuate due to
- If you are an impulse spender and/or will have those funds
stashed in an account anyway, it's a no-brainer.
So, why doesn't everyone put their
money into CDs?
- The number one reason is that a CD locks your money in for a
set period of time making it a questionable investment choice if
you have an emergency.
- If you close your CD before it matures, you are docked your
interest, sometimes even if you haven't had a chance to earn that
interest. This could result in a reduced principal.
Is a CD a good way to grow an emergency fund?
Yes and no. The benefit of an emergency fund is that it is
easily available in the case of an emergency. Unless you can absorb
the penalty from an early withdrawal, there might be better options
for your emergency funds.
Where to get a CD?
As long as the CD that you plan to buy into is FDIC insured, it
doesn't really matter where you get it. Many online sites like
mortgageloan.com can tell you what CDs currently have the highest
Online sites like .ING are very popular because of their low
rates, but it also pays to look at local banks and credit unions as
their rates are often competitive.
Overall, CDs are an excellent way to get a better rate of return
on money that would otherwise sit in your bank account. Sure,
you're not going to get rich off of a 3-5% interest rate over a
1.5% interest rate, but it's better than what you would have been